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Tuesday, 08 March 2016 04:28
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EPFO row not an excuse for inaction on subsidies


Revenue secretary Hasmukh Adhia has already cited the fact that Parliament had passed the retrospective taxation statute to say that it cannot be fully undone. In an interview to PTI over the weekend, he has said that it ‘looks odd’ if the government were to waive off the entire amount—in other words, were this to be done, the government would be accused of being a suit-boot-ki-sarkaar. And, once finance minister Arun Jaitley rolls back the EPFO proposals, as is widely expected, a moral equivalence will be drawn of the duplicity of cutting subsidies for the poor while retaining them for the rich.

This is missing the wood for the trees. When, as is the practice, Jaitley chose not to contest the Bombay High Court’s judgments on the Vodafone and Shell transfer pricing cases, no one thought it ‘odd’ or criticised the government for pandering to corporates. Similarly, when Jaitley did a U-turn on MAT on FIIs, after saying he could get Rs 40,000 crore from it, no one cast any aspersions on either him or the government. Nor was this done when, in this budget, the government legislated a one-time settlement by paying the tax with the penalty/interest waived since this too is irregular if the tax was justifiable—the only thing that is preventing the government from scrapping the retrospective tax is that it is not convinced it does not need to be paid in the case of Vodafone/Cairn. As for Parliament having passed the retrospective tax, it cannot be stressed often enough that this was done by way of passing Pranab Mukherjee’s budget; if Jaitley had removed the retrospective tax, this too would have been passed by Parliament.

The EPFO issue, we have said before, is not about the rich not wanting to pay taxes. In the case of the rich who contribute more to the EPFO than Sec 80C allows a tax set-off for, they are being taxed on this income anyway—a tax on withdrawals is then a double tax. Apart from the fact that there should be parity—the same tax is not applicable to the General Provident Fund of babus and the Rs 1.5 lakh ceiling proposed on employers’ contribution to the EPFO should be applicable to the NPS for babus—the fact is that, with a 5-6% return, annuities are a ripoff and should be removed in even the case of the NPS; in any case, part of the EPFO contributions are compulsorily converted to annuities even today in the form of the EPS. Also, income tax payers are right in arguing that if the EPFO is to be taxed, why is the PPF tax-free; if only the interest on NSCs is to be taxed, why should the EPFO corpus be taxed? As for the rich being subsidised, keep in mind that of the roughly Rs 3 lakh crore of personal income taxes, a seventh comes from just 83,000 people earning over Rs 50 lakh a year; those earning over Rs 10 lakh a year are around a tenth of the taxpaying population but contribute more than half the income tax collections. Also, over the years, the government has removed various exemptions on small savings and also lowered their rates, but there has been muted protest. The problem with the EPFO changes were that they were only applied to one section of people, represented a tax-on-tax and interfered with people’s choice. Let’s not set up straw men and draw the wrong conclusions.


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